Why Your Parent's Financial Advisor Doesn't Want To Talk To You.

Gordon Gekko & Bud Fox

I’m a huge fan of Wall Street movies. One of my all time classic favorites, and probably the most well known is Wall Street, with Michael Douglas and Charlie Sheen.

Charlie Sheen (aka Bud Fox) is a new, young broker on Wall Street trying to make a name for himself. After some serious persistence, he finally gets the attention of a big time investor, Michael Douglas (aka Gordon Gekko).

Bud Fox goes from a struggling, young broker to living in a penthouse. All of this because of the type of client he’s working with. Gordon Gekko is making such big investments with Bud that the fees Bud earns off those investments are huge.

You’re probably asking, “why the Hollywood movie review?”

I bring this up is to highlight how money is made in the wealth management and financial advisory industries. Financial advisors and brokers (the terms are synonymous among the public today) make their living by charging a percentage-based fee off either the investment made or the amount of money managed.

This is going to get a little technical but there is a reason for going through all this.

Since the beginning of time on Wall Street, people made money by selling products. Those products, usually stocks and bonds, were sold with what’s called a brokerage fee. The broker gets paid a fee based on the type of product he or she is selling. Different types of products had different fees, some more attractive than others.

The varying fee structures created a natural conflict of interest in the industry. Brokers wanted to sell high fee products but sometimes those products were not in the clients’ best interest.

Over time, regulators in the government saw this and essentially told Wall Street they need to shape up and act in their clients best interest, which is where we are today.

In today’s world, brokers are called financial advisors. And financial advisors make money in a slightly different way. Today’s financial advisors don’t make money on selling one product over another. Instead, they make money by charging a percentage-based fee on the entire portfolio that you hold with them. For example, charging 1% on a $100,000 portfolio.

The reason for doing this is because it puts the advisor’s compensation and the client’s investments on the same side of the table. The advisor is incentivized to make the best possible decisions for the client and the client’s portfolio because his fee is tied to how well the portfolio performs over time.

Why It Doesn’t Work For Millennials

Okay, still with me? What’s my point with going through all of this? Why doesn’t it work for Millennials?

This part is pretty simple.  The reason most financial advisors don’t talk to Millennials is because we simply don’t have enough money for them to manage.

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An example will help. Say you’re 30 and have $50,000 saved up in an IRA and you want an advisor to help you with it. Most advisors are going to charge 1% on the $50,000. This means the advisor will make an initial fee of $500. This initial $500 is going to be split with the firm he’s a part of and the usual split is 60% to the firm and 40% to the advisor. Now, that initial $500 fee is worth $200 to the advisor. And this is all pretax money as well! Add in healthcare, 401k contributions and taxes and that $200 is now probably about $100.

Say the advisor you’re working with needs to make $100,000/year after taxes, healthcare and retirement contributions. This means he needs to find 1,000 clients with $50,000.

In practice, 1,000 clients simply aren’t reasonable for your traditional financial advisor. Say that advisor’s expenses go up with a wife, kids, college, etc. All of sudden he would need to be in the several thousand client range just to make ends meet.

The takeaway here is the current fee structure of the industry incentives financial advisors to look for clients who have significantly more assets than your average Millennial.

There is absolutely nothing wrong with this. It works well for people like our parents in their 50’s and 60’s.

But this type of fee structure does not work well for Millennials. This fee structure means that all the financial professionals are looking for clients in their 50’s and 60’s. Ultimately, this leaves a large percentage of the population, including Millennials, without professionals to help them out.

What You Can Do About It

Luckily there is a way forward!

The first point thing people can do is utilize the internet. It sounds simple and obvious but it can’t be emphasized enough. There are thousands and thousands of resources online for literally every topic you care to get educated about.

There are blog posts about getting a mortgage, there are YouTube videos about student debt strategies, there are Facebook groups, newspapers, academic journals…the list goes on and on.

The amount of resources is overwhelming. Even for someone like me who speaks this language, there are times when it’s hard to find an easy to understand and easier to implement resource. I often find myself wishing there is someone who can just help me sift through all the information out.

But what if you were never taught personal finance, or aren’t interested, or don’t have the time or any other number of perfectly reasonable reasons to not invest the time to educate yourself on these topics?

Well…then, you can turn to my business, Perceive.

Perceive is my response to the problem, as outlined above, in how financial services are provided to Millennials. I started Perceive because I truly believe the people who need the help the most are not getting it.

A couple of things we do differently

  • Access – Everyone deserves help. Our fees are designed to reflect that.
  • Education – I educate, you make decisions.
  • Relationship – No call centers or AI here. A human is your one and only contact.
  • Technology – Life is busy, our tech is here to make it easier.

My goal is to make your personal finances as simple and easy to understand as possible. I’m going to take you through your situation from beginning to end, going as slow (or as fast) as you need and also educating along the way.

Success, to me, is having educated and knowledgeable clients who feel empowered to make their own financial decisions with confidence.

If any of this resonates with you, please, go to my website, schedule an appointment and let’s talk. I’m here to help.